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guy who went to apple. what i say, brilliant! what i care about is growth, i don't care who is going, who is coming. i need growth, okay? i like to say there is always a bull market somewhere. i promise to find it just for you right here on "mad money." i'm jim cramer and i will see you tomorrow! good evening, everyone. i'm larry kudlow. this is "the kudlow report." cyprus defiantly and unanimous low votes against a bank at tax plan. now the risks of bank runs and bank collapses mount in this tiny country. we are about to bring you live report from cyprus. but cyprus may have an ace in the hole. it's called russia. the parliament is going hat in hand to russia to save its financial system in return for ownership of its natural gas resources. so do i have this right? the russian money-laundering thugs can save cyprus and maybe europe and maybe the global financial markets as well?

it's a very scary thought. however, here at home, american business leaders speaking in one voice in a new campaign to push pro growth corporate tax reform. i like it. the polls show it. there's too much talk about root canal, dent and budge cutting. we need growth, we need optimism. we need "the kudlow report." it begins right now. first up this evening, let's go live to cnbc chief international correspondent, michelle caruso cabrera who joins us from cyprus with the details. good evening, michelle. >> reporter: good evening, larry. it's been a day of high drama here in cyprus. just a few hours ago, the parliament resoundingly rejected the idea of taking money from bank deposits here in order to secure a bailout. the rest of europe groan. protest yourself, however, cheered. now they have to get back to work tomorrow, come up with a plan b., how are they going to

get 5.8 billion euros, that's what they have to do to get another $10 billion in loans from the european partners in order to resolve the situation of their near-busted banks. also adding to the drama today, the finance minister tried to resign. it's not clear why. the president wouldn't let him. and then he immediately left for russia. as you mentioned, to try to secure some kind of help, maybe in exchange for natural gas rights. at minimum, they would just like easier terms on a loan that russia gave two years ago. the banks are supposed to reopen thursday but increasingly it's looking like maybe the bank holiday could be extended through the weekend. and then there is a holiday on monday so that might mean the banks don't reopen until tuesday. also tonight, the ecb and the european finance ministers both put out statements in the very coded language of bureaucrats and central bankers, willing to give the country more time. it's just not clear how much. now wolfgang shoibl, the minister of finance for germany, the germans always talk tough in these situations.

among other things, he said, cyprus has no one to blame but itself for the current situation that it's in. when the banks do reopen, larry, it could be there are capital controls put in place in order to prevent runs. in other words, limits on the amount you can withdraw from the bank, limits on wire transfers. there's even talk of perhaps physical capital controls at the borders to make sure people aren't bringing out large amounts of cash. normally under european law, that would be prohibited. but there are exceptions for emergencies. it's going to be pretty tough here over the next couple of days, larry. and if they don't come up with a deal, which people still think is actually quite possible, this could be a situation where we're talking about a country leaving the euro. but we're not there yet. back to you. >> all right. many, many thanks, michelle caruso-cabrera, we appreciate the update. you'll continue to give us live reports tomorrow on cnbc throughout the day. meanwhile, the finance minister of cyprus will present a plan to russia tomorrow that apparently

would have the oil and gas company restructure the cypriot banks in return for full natural gas exploration rights. of course, this would bail out the russian money launderers and other depositors in the cyprus banks. no doubt, russia is invested in this crisis. the country reportedly keeps $19 billion in personal deposits in cyprus. nobody knows what that means. nobody knows what the paperwork is. and that's just the way the russians probably want to keep it. anyway, let us bring in don jensen, senior fellow at the center for transatlantic relations at johns hopkins university. and my guest here with me throughout the show, steve forbes, editor in chief and cnbc contributor judd gregg, former republican senator from new hampshire. welcome, gentlemen. don jensen, let me go to you. how fanciful is this story? this thing keeps popping up. gas program is going to go in, take over the banks, restructure them, save their own money launderers, save their own

russian money and take over the cyprus natural gas fields. that is one hell of a deal. i ask you, is that possible, is it plausible? >> it's very plausible. in fact, it's a good scenario. larry, gas prom can buy the whole island. and people always joke that there are so many russian shell companies in cyprus that it's virtually already a part of the russian federation. >> so let me ask you the question du jour or the question du nui tonight, is it odd that russia that bails out the world financial markets? i find this to be utterly incredible. >> well, you have to realize, too, when russian oil garbages and organized crime figures send their money abroad, they like a nice, reliable banking system like those existing in europe so there is an incentive for russia to buy the island or have gas prom restructure the deal. it makes sense in many ways for russia, as surprised and shocked as putin was the other day when the deal was first announced. >> larry, russia may be the only

solvent country in europe at this point. and what you have here is too hill little to fail. we're worried about too big to fail. cyprus is a very small company with extraordinarily small economy. the fact it would precipitate a run with the greek banks or italian banks and bring down the entire system in europe, fumbling along, kicking the can down the road is really pretty fried and we know from experience these events, whether in the balkins with the shooting of an arch duke or whether in cyprus with the shooting of a banking system can lead to fairly significant consequences for the entire european continent and us. >> so far, the worst-case scenario hasn't happened yet. so far. that's good. let me ask you, steve forbes. do you believe that the united states can make itself immune? are we strong enough economically, and financially, to withstand the kind of

worst-case scenario that senator gregg discussed? >> the answer is no. we should have learned that from 2008 when these dominos start to topple. it hits everybody. and this is what is so inexplicable. why did the germans draw the line on this, for sheer domestic political reasons. they don't want to be bailing out russian oil gargs. they have an election this year. they have known for nine months. >> they have known this -- they know the russian dirty money. and they had to know that taxing, literally taxing deposits that are guaranteed is nothing but confiscation of private property. that in the -- even the dummy cypriots would be opposed to this. >> well, and they have got -- >> even got the french. >> no, but -- but it's -- and they let off the bond holders. they're not going to make the bond holders take a hit. so this was -- inexplicable, just like what happened in 2008, after bailing out bear stearns, fannie, freddie, decided to let lehman go down.

said we're going to draw the line on lehman and 48 hours later nationalized aig and had to do trillions of dollars of guarantees to the financial system. so this was kind of a muck-up like that. inexplicable. they didn't want to be seen as baling out oil i gargs in an plex year, even though it was a small amount of money and that's how you get a rocky financial system collapsing. >> all right. don jensen, let me come back to the russian part of the story. whether it's gas prom or the russian government or russian finance industry, i have no idea. maybe you do. but it also occurs to me, we know -- we've had reports, including last evening on this program, russian people are really money launders in cyprus. and, in fact, they're sort goods and service evil launders, too. they unload and load stuff that goes to iran, stuff that goes to syria. i mean, it's really bad stuff. so i just had this thought. if russia gas prom or whoever can run the cypriot banks, that

would leave them in a position, the russians, to keep the record-keeping nice and sloppy. so no one really knows what the hell is going on. it wouldn't be anything to do with the ecb. or germany or somebody that might be more appropriate. this would keep it nice and sloppy, wouldn't it, don jensen? >> yes, i'm glad you mentioned that, a national security angle too, the european press has said they use cyprus banks to fund the assad regime. the other thing i wanted to mention, larry, since the beginning of the year, putin has wanted to reduce the exposure of russian oil garbages abroad and actually started since february to use cyprus a little bit, yes. i think -- less. they prefer the leathnetherland prove some of their money. and putin has wanted to exempt cyprus from some of this -- to protect cyprus as a haven, even as some of his cronies are moving their money further west, anticipating some kind of disaster, just as has happened,

in fact. so they're not entirely taken by surprise. >> no. i don't think anybody is. i mean, i think everybody knew this was going to happen. and it's happening. >> but, larry, the bottom line is, the risk of allowing a run on the cypriot banks is so significant, that it's worth it to let russia come in. >> i agree. >> and put $5 billion down. and basically stabilize the situation, rather than have it be done some other way, which would involve the euro. >> i don't see how they can avoid a run oppose on the banks, one way or another. nobody is going to believe them. >> that's true. >> this is what makes is so inexplicable. in italy, spain, europe, france. any sign of a crisis, which, you know, is going to come. they're going to withdraw money. they're not going to believe it anymore. they can do it anywhere. >> i'm amazed -- >> you're going to see ripples in this country. they already talk about it. they're going to cease 401(k)s and the like. the rule of law when you start to undermine it, bad stuff. >> hang on one second.

don jensen, thanks very much. i want to go over to ron khrushch khrushchevski, a great friend of ours. ran, let me ask you right off, i hope you heard part of our conversation now. is this cyprus financial fiasco a stock market sideshow, in your judgment, or is there a bigger threat here? >> i think it's a sideshow, really, larry. it is the minnow that would swallow the whale. but the biggest issue is taxing depositors. that's at the core of capitalism. and that just doesn't make any sense. and that's the bigger issue, simply that. but cyprus is very small, and i can't imagine that they're going to allow this thing to take down the euro. that doesn't make any sense. >> but not so much taking down the euro. that's an interesting point, another side point that might become central. if there's a run on the cyprus banks, let's say they reopen them. i don't know, michelle caruso-cabrera, wasn't sure. nobody knows the answers.

unless the russians make a deal, i don't know who want to keep their money in banks because the banks are going belly-up or the money will be con if i stated again. that leaves the steve forbes scenario with italy and spain and so forth and so on. >> well, you're going to absolutely have to look at, you know, control of money flows. and you can't have depositors running out of any country where there is a concern. you know, larry, it is small. i will tell you this thought. beware of islands that want to be money -- international money centers, okay? let's look at that. >> i like that a lot. that's very good. ron khrushchev will come back later in the show. we've got yet another solid sign of a stronger economy today. at least some good news. housing starts soared, and that's great news for home builders, like toll brothers. we're about to speak with the ceo, doug yearly, next up. and senate majority leader harry reed blames the budget cutting sequester for an accidental

death of seven marines in a training exercise. and you know what? the marine corps rips reid by calling it, quote, pure political posturing on the backs of those dead marines. end quote. so i'll just say this. don't forget free market capitalism is the best path to prosperity. yes. but let's never forget the valiant loyalty and service of our marines and all our armed forces, no matter what two-bit politicians may see. i'm kudlow. "the kudlow report" will be right back. my mother made the best toffee in the world.

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all right. today another optimistic economic sign. this time coming from the housing sector, please check this out. we're going to begin with housing starts. we're running strong up to better than 900,000 per month. now, by the way, the peak many years ago was 2 million. so don't talk to me about bubbles. this is just about recovery. but i do want to just show you that this thing continues to roll up. it's up 28% year on year. now let's go to the second one. housing permits, same story. i'm sorry. should have cleared that. same story. but now i'll just redraw the line anyway. there you go. it's still running up. that's about -- let's see, 34% a

year. here's something to think about. housing starts are leading indicator of the whole economy. and so that contribution may kick in this year, give us better than expected growth. housing permits are leading indicator of housing starts. so leading indicator of a leading indicator, which really got my attention today, and people who tell me we're having a boom, an excess of housing boom, are you kidding? these numbers at 900 some,000, we were 2 million in the middle 2000s so please be thankful and grateful we've got optimism. now, earlier, i had the opportunity to talk housing with doug yearly, the ceo of the nation's largest luxury home builder, toll brothers. and i began by asking whether today's optimistic housing start data is the sign of a real housing recovery under way. take a listen to what he told me. >> it sure feels like it. we're now in our second strong spring selling season. the numbers today we expected.

we have seen the same thing. our first quarter orders up 49%. first three weeks of february, which is the last time we announced, we're up 40%. so we feel great. it feels like it's here for real this time. >> what's driving this? it is fed-induced low mortgage rates, or is there more going on? >> consumer confidence is up. mortgage rates are incredibly low. and you've got seven years of huge pent-up demand from all those families and individuals that did not come out to buy a house that now are. so when you put it all together, we're starting to really roll here. >> and is the foreclosures coming down, is that what's going on, so sales are going up? and inventories are being balanced? >> yeah. foreclosures are definitely down. they don't really affect our business, because we're at the luxury end. inventories are down. no question about it. we've got a lot of companies out there buying up, you know, distressed homes in many markets. the best example is phoenix,

arizona, a year-and-a-half ago, 15 months of inventory overhang. today it's about four months. you can't find a house and the new home builders are really prospering from that. >> all right. so as a new home builder, how is the pricing? >> pricing is good. we're raising price in about 60% of our locations. which, of course, accounts for more than 60% of sales, because that's where we're hot. and it's, you know, firming up. we have more pricing power this spring than we had last spring. there's room to go. it's early in the recovery. but you better buy now, because the price is headed up. >> why did you have -- in your last quarter, you disappointed wall street. the deliveries of new homes were down. the earnings missed. what was that all about? why did that happen? >> our orders were great. our orders were up 49%. our backlog was up 67%. we disappointed, because we only delivered -- we only closed on 32% improvement over last year.

and the street wanted more. that was timing. it's early in a new cycle. when that happens, you've got subcontractors struggling to find employees. we've got to beef up our construction teams. you've got toups that don't have building departments as big as they used to be. it's also the winter months when we don't deliver as many homes. we have guided for strong numbers for the year. we haven't changed the revenue number for the whole year. but we're going to be back-end loaded with revenue this year. and so the first quarter, while disappointing, i think we were able to explain it. and we look great for the balance of the year. >> i mean, toll's stock kind of lags the index, the s&p index for home builders. is that because you don't deliver fast enough, or you don't complete fast enough? how do you explain the fact your stock lags the index? >> well, it may lag a little right now. we've had a great run, as all the builders have had. and i think we're fine. i think in a good market, we have always driven price. it's a lot easier to take a

$700,000 house to $900 in a great market. because our buyers don't have mortgage issues. they have -- usually have a lot of equity. so i think we're in good shape. i think maybe after the first quarter we sold off a little bit. but i think we're just fine. i'll take where we are, and i love where we're headed. >> all right. so you buy into the recovery. what about washington? what about washington? are they helping you or hurting you? >> right now, everything is okay. the sequester did not hurt our business in northern virginia and maryland. as we thought it might, and many thought it would. so we seem to have gotten through that without seeing any real change in sales. in fact, northern virginia is one of our best markets in the country. but right now i think the best thing that washington can do is to continue to support housing. and we'll be just fine. >> how should they support housing? how should they support housing? i thought you're a free market guy. >> support it by backing off.

there was a couple -- >> right. >> there was a couple years there where all the headlines were negative. right now, just let the market recover. and i think we'll be just fine. >> all right. there you have it. let the markets work. i love that. music to my ears. many thanks to toll brothers' ceo, doug yearly. the sequester tactics back fire on the white house again after shutting down a beloved family easter event. we have that story and much more coming up. [ male announcer ] ah... retirement. sit back, relax, pull out the paper and what?

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reports of reports of a chemical weapons attack in syria, but so far nobody knows who did it. cnbc's own brian shactman here to explain that and other top stories. good evening, brian. >> good evening, larry. accusations about a chemical attack. the rebels blaming president assad and assad's regime blaming the rebels. two major israeli newspapers say milita military sources told them they have confirmed chemical weapons were used, but they can't say by whom. president obama, of course, has said use of chemical weapons would be a, quote, red line for his administration. we'll see whether that means the u.s. will get more involved in that civil war. senate democrats drop the assault weapons ban from their gun control bill. california senator dianne feinstein had proposed the ban, but there was not enough support for it. and a huge problem for lululemon. i know all the guys around the table are fixated on this one. one batch of its black yoga pants were too sheer.

no one wants to pay 100 bucks for pants see-through. at least in that industry. the ceo is in trouble and the stock down nearly 10% since last friday. larry, if i can't make a joke on that one -- >> that's a beauty. >>, and of course, the white house, easter egg roll is definitely on. at least for now. press secretary jay carney putting to rest speculation it could be cancelled because of the sequester imposed budget cuts. but the tickets did go out with a warning. that it could be cancelled if there's a government shutdown. big news, larry. >> that is big news. we can all breathe a little easier. i've been to one of these easter egg rolls. all right, jared bernstein, as an obama lum inconsistent -- why are they so mean -- why would they be so mean as to even threaten the kids not to have one? >> very -- the grinch isn't the right character for this part of the season. but i take your point. look, the problem is with the sequester is that these are what you call horizontal cuts. you can't go vertically and say

i'll cut here, i'll cut here, won't cut there. they're imposed across the board and believe it or not, whether it's white house tours or easter egg rolls, these are very labor-intensive events. so there may be a rationale for it. my view is that -- from the perspective of financial markets and the stuff we like to talk about here. this is tiny little potatoes or eggs. >> jed greg, let me ask you -- come on. they don't have to -- this is deliberate political strategy to try to defeat the sequester by making everybody cry and weep, including little kids that want to roll easter eggs on the white house lawn. how pathetic is that? >> i think it draws attention to the fact that the sequester is actually an effective way to get people's attention on how you reduce the size of the government. and clearly, if we had some leadership pulling together on the issue of replacing the sequester with entitlement reform, which is exactly what has to be done, this would not be a problem. so i actually think it heightens the debate on what we need to talk about, which is where we should be making the changes and the changes should be made --

>> let me agree with jed for a second on this. you may think it's -- you may not expect this, but i think -- i think that's basically right. here's the thing. if we can cut $85 billion out of our spending and nothing happens, and you're right, and you're right. then i'm wrong. then there's a lot to be said for these kinds of i think -- you know, very inefficient and very inappropriate cuts. i think we will start to feel it, both macro economically and in people's lives. sorry, steve. >> a quick one. we're coming back to this whole subject. >> why didn't the white house go along with the desire of the house to give the president the authority to make the cuts instead of the across the board blunder bust? >> i actually think we are going to start seeing that. i think the senate is asking for that kind of flexibility in the continuing resolution. i think they're going to get that. >> why not in the first place? >> i think they had to wait until the senate was there and ready to move on that. >> by the way, larry, in new jersey, we have a budget today, lower than it was five years ago. and the sun still comes up in the morning. >> why did those dopes -- now

you're really getting me going. why did those dopes at cpac, my friends, i know, but i'm talking about the leader. they kept chris christie out. you said what? five-year low in the budget level? isn't that what conservatives are supposed to do? and they kept chris christie out? explain that to me. >> they're trying to help his re-election, going to a conservative place, and running in blue state new jersey. not. >> all right. i guess so. >> they -- >> i guess so. >> blundered. >> he's done a good job. they did blunder. thank you for that. see, brian shactman, all about easter eggs. >> the best egg panel i've been on. >> brian shactman, raise your hand, you did a great job on that one. let's get back to growth. what does america need more than anything else to get the economy going? the answer is simple, in my view. corporate and business tax cuts. american business leaders are now speaking in one voice, demanding just that. steve forbes, judd gregg, jared

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it's our job to look after them. ...it's my job to look after it. ♪ all right. welcome all right. welcome back, everybody. first up, last week, president obama told a tv interviewer he

didn't have immediate debt crisis. or we in america don't have an immediate debt crisis. and this weekend speaker boehner said basically the same thing. >> we do not have an immediate debt crisis. but we all know that we have one looming. >> all right. you know what, i think they both could be right. i don't think we have an immediate debt crisis. i like to see more growth, not just debt root canal. oh, my god, i said it. that's, by the way, why the business round table of american ceos is pushing hard for a lower, more competitive, more pro-growth 25% corporate tax rate. so let's talk about this. steve forbes, judd gregg, jared bernstein, still with us. all right, steve forbes, look, i have -- i want to balance the budget all the rest of it, but it just strikes me that the republicans are a little bit too root canal, a little bit too debt-obsessed, a little bit too deficit-obsessed and don't talk about the economy and jobs, which polls still show are the number-one issue. >> yeah, they've got to go back to reagan and jack kemp to stop

acting like consequence at this pated accountants and get focused on what makes this economy grow. and the way you get revenues, not by raising taxes, by growth. if we had normal growth rates, we would get another 4 or 500 billion right off the bat. that's what they should focus on. all a means to an end. on social security, stop coming across that you're going to, you know, do something to grandma and instead talk about the idea, which they haven't, they don't touch it, of having accounts for young people with proper controls where they own the fruits of their labor, not washington politicians. make it positive instead of this -- as you say, root canal, that was more graphic. >> i think that -- i don't want to get -- i want to talk about the corporate tax, but i want to add to this, i think in a sense obama was right. and i think boehner is right. i think a lot of republicans go too far in this whole point. the immediacy of this crisis -- look, even the cbo says you've got ten years or so before the deficit starts going back up and so forth and so on. but i do -- i do think -- i do think it's an interesting theme.

that's all i'm saying. >> i agree. we have to remember, the budget deficit was 10% of gdp in 2009. now it's 5. and going down to 2 or 3 and then it's going to start going up again. >> $800 billion now. >> that's all. and those pressures, by the way, coming from health care costs, not from a lot of the stuff they're talking about cutting the discretionary part of the budget. but on the corporate tax thing, i hate to introduce root canal again be, but if you want to get down to 25%, the white house said 28% and it's a goal that probably all of us would embrace, you're going to have to close a bunch of loopholes. if you want it to be at least revenue-neutral -- >> which the president has said he would have -- not the corporate, the personal. >> anyone who advocates for that and i've got a whole list, has to be willing to put their specific loopholes on the table. you can't do the paul ryan thing with the big asterisk and say -- >> what do you think? >> that's exactly the way you have to approach this. we do need -- first off, this issue is about 5, 10, 15 years

from now, stablelizing the debt at less than 15% gdp and the essence getting entitlements under control in the out years. as part of that, you have to have tax reform and significant tax reform. and actually, simpson/bowles, a commission i served on, laid out a way to do it, got the tax rates down on the personal side to 9, 15 and 23% and the corporate to 26%. and you need to bring the corporate rate down to 24, 25, 26% and need to go to a territorial system. but you can't do that independent of the individual system, because if you have a huge gap between the top individual rate, say today it's at 42.5%, and if you took the corporate 25%, everybody started -- >> because then you have small business. small business got screwed at the expense of big businesses in the last tax bill. so you're right. so i -- look, i say, you're going to have big problems if you try to have a big personal and corporate together. i don't think it's possible. i don't know why you just can't do this. reform the corporate tax code. you can put limits on the

deductions or -- i don't care. the president wants to do it. the republicans want to do it. just do it. but one exception. let small businessmen and women who pay the personal code, let them take advantage -- let the passthrough s corpse take advantage of a 25% corporate tax rate. that is my proposal. clear and simple. >> they all convert -- >> just go there. >> how do you make up all the revenue you lose with that? >> we're going to make a fortune. it will even help your budget. >> oh, i'm sorry. >> that's all i want. take the small businesses who got screwed, put them back into the c corps where they belong and let them all pay 25% rate. >> absolutely. and talking about territoriality, what is it, $1.3 trillion of cash overseas, get a fraction back -- >> it's like free money for -- >> why didn't the president do that? >> he wants to penalize that

money. >> because if you move to a territorial system of the type you're -- and by the way -- >> not cyprus. >> we don't want to really follow cyprus right now. but if you move to a territorial -- and by wait, a lot of european countries are moving away from that system for the following reason. what you do is you incentivize your producers to go overseas. >> no! >> at that point it is cheaper -- to build a factory in singapore than detroit and we don't want that. >> no, no, no! it allow them to stay here. they won't have to go overseas for that. but they have to go overseas -- i've got to talk to you -- do you understand that these businesses are global enterprises. >> yes, i do. >> they have sales to overseas, they have assembly lines overseas, then they bring it back to the united states. you have to go where the growth -- >> great. >> would you explain this, senator? he doesn't understand why this is a global, integrated economy. please help. >> yes, i do. >> more important than that, the fear that he's presenting, which

is that companies will create jobs overseas if they are allowed to have a territorial system is exactly what's happening today. what do you think that 1.3 or $2.2 trillion is being invested? it's not being brought back here to expand in new hampshire, it's being used to buy a plant in switzerland, because they can't bring it back. >> i don't disagree. >> and so there is no reason you shouldn't have this money repatriated here where it can expand plant, expand jobs. be paid out in dividends. >> quickly, i don't disagree with judd on that point. and the reason why i think he's right is because we have a pseudo territorial system as it stands, because of deferral. remember, you can defer your overseas earnings as long as you want. and we have to end that. >> you get the absurdity to today, a couple years ago, for example, cisco floated bonds, even though they have cash on their balance sheet. why? because to be overseas, they didn't want to pay 35% so they borrowed here. apple was talking about the fact that most of their cash is overseas so if they want to hike the defeividend, where does the cash come from, they have to do

a preferred stock or bond. >> everything you have spoken about as incentivized building over there versus building over here and we don't want that. >> get the corporate tax rate down to 25% -- >> thank you. >> my point. >> totally key point. >> i'm all for -- >> 10%. >> all right, listen. i would go for the forbes flat tax when he ran for president twice and would do it again. that's the thesis. that's what we're saying. that's the basic principle here if we get this done. right now, the perm tax -- leave it alone, too complicated, not going to happen. president disagrees. corporate -- people think it will pay for itself. so excited about this. this is all about rolling easter eggs. now, just how long will the feds -- >> grows the economy. >> all right. got to switch gears. how long is the fed's easy money going to last? we talked to a former federal reserve governor. that is up next.

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from the united states postal service a small jam maker can ship like a big business. just go online to pay, print and have your packages picked up for free. we'll do the rest. ♪ federal reserve kicked off its two-day meeting today. let's go to randy kroszner, former federal reserve governor, professor of economics, university of chicago's booth school of business, as always, randy, thank you. randy, some of your -- some of the board members, jerome stein,

getting cold feet on this easy money in bond-buying. cold feet, i call it. so does the strength of the economy change the feds' view? >> over time it will, but i don't think quite yet. we have seen these green chutes before back in early 2010, 2011. unfortunately, they wilted by the time summer came around. and they needed more support. so i think the fed is going to be very wary of pulling things back before they really see these green chutes take root. >> so basically, you're expecting mr. bernanke to be very firm. i don't just mean the fomc minutes, but tomorrow's news conference. he's going to be very firm. is that what you're saying? firm, meaning firm, easy money, for as far as the eye can see. >> i think he's going to acknowledge the economy has gotten better. we see stronger consumption, we see better employment numbers. but he's also going to talk about the risks, whether they're from the follies in washington or the follies in cyprus.

and i think that means that they're not going to be pulling the punch bowl away any time soon. >> the cyprus thing is interesting. i wonder if the fed will make mention of that. randy, let me ask you something else. a lot of distinguished economists are talking about the federal reserve targeting nominal gdp, which for oh viewers is total spending in the economy. real gdp, plus inflation. does the fed target nominal gdp? >> certainly, that's one of many indicators that the fed looks at. but i wouldn't say that's a particular target. right now it's -- as you can see from the statements, they're looking at trying to boost gdp growth, bring down the unemployment rate, but make sure inflation doesn't get out of control. that would be a different way of focusing on things of looking at the real growth plus inflation. but certainly the fed isn't there yet. >> randy, steve forbes here. why is the fed in favor of 2.5% inflation? do they still believe inflation means growth? >> i think they want to make sure inflation doesn't get out of control and inflation

expectations don't get out of control. so the lessons that paul volcker taught us haven't been lost. but also they want to snake sure we don't flip into a deflation situation. i think that's why there is an explicit 2% goal because japan, unfortunately, slipped into deflation and never credibly got out of it. now with the new central bank -- >> so in effect, we have to tax the people of 2, 2.5% a year because inflation is a tax, right? >> inflation is down below that level. >> but they want to bring it up to 2, 2.5, so that's a hidden tax, right? >> the goal -- >> is it a tax? >> the goal is to get close to 2%. certainly, depending on how you set your investments up. it could be something that you can lose. >> all right. i've got to leave it there. we can debate that. inflationnary tax. randy kroszner, thank you. bottom line, easy money from the feds. now, we do have the results from the latest cnbc fed survey. and this is interesting. they show why the majority of

the respondents believe something other than the fed is actually responsible for this recent stock market run-up. this has been a theme of mine. so what wall street is hoping to hear from the ber-nank tomorrow i'm sure is easy money. but maybe that's not all there is. let's welcome back ron kre she have ski. steve forbes will stay with me. can i read this out? 28% said it's the fed driving the stock market. but 24% said the economic improvement. 18% said profits. i would have said that much higher. and 12% financial stabilization. ron kre she have ski, how important is the fed's easy money to the stock market rally? >> it's important, larry, but i would agree it's not the only thing. you don't fight the fed. but look, retail sales are improving, housing is improving. the stock market is undervalued, relative to bonds. a 1.9% yield on the ten-year treasury, and the gdp could grow 3%. the money undervalued, in my opinion, is the s&p 500.

>> what do you think, steve forbes? stocks. >> the stock market is undervalued. and it's not the fed. the fed is almost a barrier. companies with balance sheets that are strong, good profits, really done a great job in the last four or five years. what you have to worry about is smaller business, unincorporated businesses, which we touched on earlier, they're the ones not benefitting from 0 percent interest rates. like the soviet union, the food was free, but you couldn't get any. >> we pretend to work, you pretend to pay us. >> what i'm concerned about the fed is the punch bowl is great, but the fed balance sheet could get to $4 trillion. think of that as a percentage of our gdp. the concern we better start talking about is how is the fed eventually going to unwind thissel balance sheet. that is a concern. >> is that a stock market concern presently? >> no. >> and would you go in and buy bank stocks right now? >> look, i would buy financials.

financials are benefiting from the improving economy, the improvement to housing. the fact that deflation is really coming off the table as a risk. i would own financials, and i like tech too, larry. >> and you said earlier in the show, cyprus is just a sideshow. but let me just ask you one more time. if it spreads, okay, it's sort of hard to predict these things. i hate to be cavalier. so if it spreads, in a worst case, do you roll up the sidewalks? what do you do in stocks? >> look, cyprus is a very small -- very small economy. i think it's a sideshow, just because i can't believe that anyone would be so stupid to allow that situation to collapse the european -- whatever it is. and i agree with steve. you know what this is about? this is about that merkel in germany can't come up with a solution until she gets re-elected in september. >> late word, steve forbes. merkel? >> merkelel is showing she's not up to leadership of saving the

euro and saving europe. >> she's going to let russia do it. >> she should be taking a firm lead in terms of pro growth policy, especially in the south. stop crushing the private sector. instead she's going for austerity, a kind we haven't seen since the 1930s. >> what we need is government austerity. >> they did that in the early '30s, crushed the private sector and we saw where that led. thankfully haven't blown up the trading system shall but it's a narrow and -- >> it's hard to do austerity at the tip of a fountain pen. they used to do it by wars. but that isn't going to happen now. >> ron, thank you ever so much. appreciate it. now, is there anything the democrats won't say to stoke their sequester scare tactics. apparently not. wait until you hear what senator harry reid said today. unbelievable. you're going to be angered and disgusted, and you will not be alone. at tyco integrated security, we consider ourselves business optimizers.

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personalized coverage and savings -- all the things humans need to make our world a little less imperfect. call... and ask about all the ways you could save. liberty mutual insurance -- responsibility. what's your policy? on on the senate floor this morning, majority leader harry reid implied that an explosion that killed seven marines in hawthorne, nevada was due to, quote, cutting back in training and maintenance, end quote, in the sequester. take a listen to this. >> we have to be very vigilant. this sequester should go away. we've cut already huge amounts of money, and deficit reduction. it's just not appropriate, mr. president, that our military can't train and do the maintenance necessary.

>> all right. this is incredible thing. the marine corps, right away, is blasting mr. reid for that statement. and they say, quote, it is pure political posturing on the backs of those dead marines. and i want to read something else, too. that marines have said that they had prepared for this training program for a good long time, and they never would have done it if they didn't have the resources to do it. so it's the marines versus harry reid. we'll be back with steve forbes, judd gregg and harry bernstein. senator gregg, this ain't even politics. this is so low, i can't believe it. >> well, it's hard to explain. harry reid is a friend. i suspect it was said in the moment. without any conscious thought about what the implications of it were. and i suspect he regrets saying it. and he is a decent individual, harry reid, and certainly understands the importance of our military and the trauma that these families must be going through right now and they shouldn't be drawn into

something like this. >> that's the thing. and the marine corps made it very clear. again, they had been planning this exercise for quite some time, and obviously something went wrong, tragically, seven died. but they say political posturing on the backs of dead marines. see, i think, apart from this ridiculous, horrible thing that reid said, i think tim obama has misplayed their hand. they have just misplayed their hand and it's back firing. and this one is going to resound -- you know this is going to be a several-day story. >> the marines are right, judd is right. no discussion there. i take your point, creating the idea that the world falls apart on march 1, they overplayed their hand. that said, i think we have to be very vigilant, not in the sense that harry reid was talking about, in making sure that we follow the impact of the sequester. as i said earlier, i firmly believe that this is going to hurt the economy, an economy that is struggling to really get

a foothold and showing signs of life. absolutely the worst time to set one of these fiscal time bombs. >> i would like to react to that. and maybe i will. i just want to read this from the marines. saying this exercise, for example, was planned well in advance, had nothing to do with the budget cuts. this is from the marines. there were no corners cut, and if they couldn't afford to have all the safety precautions into place, they wouldn't do the exercise, okay? and this was reported by nbc's jim miklaszewski. this is insanity. to have marines having make that kind of statement. and this damages national security and mar morale, too. >> it does and not even overplaying the hand, just a gross indecency. back to jerryd's point on the sequester, where does the $44 billion in cash come from, larry? it comes from we the people, either through taxing,

borrowing, printing of money, which is another form of taxation. it's not from heaven that it's being done -- >> i think budget cuts help the economy. means the economy is getting better. >> >> you bet it has. >> gdp has come down. the stock market rejoiced. >> stock market is booming. unemployment rate stuck at 8%. >> steve forbes, judd gregg, steve bernstein. thanks for watching everybody. i'm kudlow. we'll be back tomorrow evening. clients are always learning more